(Bloomberg) -- European Central Bank officials meeting last month were divided over how to respond to the economic shock-waves from Russia’s invasion of Ukraine.
While some sought a firm end-date for asset purchases and an opening to an interest-rate increase in the third quarter due to the worsening inflation outlook, others preferred a “wait-and-see approach” amid the exceptionally high uncertainty, according to an account of the ECB’s March 9-10 policy meeting published Thursday.
Some policy makers argued that “preserving optionality on asset purchases was not without cost, especially considering the risk of ‘falling behind the curve,’” the account showed. Others cautioned that in the new environment, “bold steps were even less justified” than in the pre-war situation and “could further dent confidence.”
Faced with the fastest inflation since the euro was created, the ECB surprised markets last month by mapping out a speedier exit from asset purchases. The question now is how soon record-low interest rates will be raised following the end of net bond-buying, with monetary-tightening cycles already underway at other major central banks.
Some Governing Council members are pushing for two hikes by year-end. Others are more cautious while the economic implications of the war remain unclear. They meet next on April 13-14 in Frankfurt.
Risks to the inflation outlook stemming from the conflict “were seen as largely one-sided, with experience suggesting that wars tended to be inflationary,” according to the account. But there were “different views” over how persistent the recent spike in prices would be.
Economic projections presented at the time showed the euro-area economy would grow by more than 2% even in under an adverse outcome.
“While the war would likely dent economic growth in the short term, annual growth was projected to remain positive even in the severe scenario, pointing to ‘slowflation’ rather than stagflation,” according to the account.
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